I’m at the MMA Forum in New York today, where a hoarse-voiced Tim Westergren keynoted after a “late night” (much props) in the immediate wake of Pandora’s successful IPO (at the time of this post, the company’s stock price is $13.16 after opening yesterday at $16).
The history of the company was explicated, involving a learning curve that got it to the mobile-centric strategy it employs today. After a near-death experience from unsustainable royalty structures imposed circa 2007, it experienced a rebirth on the back of the smartphone revolution.
“We first didn’t build the service for the iPhone, but consumers made it a mobile service,” he said, specifying that mobile now constitutes 60 percent of the content it streams. Taking this forward it’s analyzed where people listen to music — the basis of a strategy to integrate with everything from cars to refrigerators.
New Golden Age
Another driver for its popularity was tapping into a combination of personalized media demand, and good old radio. As the classic “discovery engine,” Westergren told a surprised audience that 80 percent of music is consumed through radio vs. iTunes and even owned music.
“Radio is popular because it’s a background experience, used when cooking or working on a spreadsheet,” he said. “The dynamics of our business has been built on this reality about the way music is consumed.”
The company sought to appeal to this 80 percent in a way that was more personalized than radio. To do that it had to branch out from the PC. Now its daily usage breaks down as 47 percent in-car, 35 percent at home and 18 percent “other” (think gym and office).
For a continuity of consumer use, all things pointed to mobile. Westergren painted a picture of users going from alarm clock to car, to office, back to car, then hosting a party that night — plugging in their iPhones all the way. At first this required adaptors and sound docks and such.
But the way forward will be embedded media to carry on that torch of connectivity throughout the day. In doing so, the music recommendation engine that drives Pandora gets smarter and better. Importantly, it also drives engagement which, is the basis of its developing revenue model.
Reaching Kansas City
In addition to premium subscriptions, Westergren revealed some aspects of the advertising model. He boasted 10 billion pieces of “thumb feedback” (songs thumbed up or down). This creates great signals for relevant ads.
“Because it’s unicast, it’s a powerful platform for advertising,” he said. “When you register, you provide age, gender and ZIP code. We also learn about the music you’re listening to. Campaigns are targeted at one or more of those factors.”
So far it’s mostly been display ads from brand (and band) advertisers. But it’s increasingly focused on audio ads, which makes more sense while driving among other things. And another shift — to answer a question I posed to him — is moving down market to SMBs.
This is, of course, a massive but challenging (ad sales) market segment. It includes SMBs but also the mid-market, which is the sweet spot of a lot of radio broadcasters. This is where the auto dealer or regional franchise live — a segment Pandora already built a sales force to address.
“That’s a big opportunity but it first requires scale,” he said. “You need a meaningful audience in places like Kansans City. As that evolves, Pandora becomes an attractive place for local ad dollars. We have a growing ad sales team, most of which comes from broadcast radio. We have our eyes, fixed on that as an important part of the future.”